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Should You Annuitize in Retirement?  4 Surprising Truths About Annuities

Let me start with complete transparency: I don’t sell annuities, I don’t receive commissions from them, and frankly, I dislike most annuity products on the market. They’re often complicated, expensive, and in many cases, they’re sold rather than planned.

My skepticism runs deep. Nearly 18 years ago, in my first financial role out of college, there was a veteran in my office who had one solution for everything: annuities. Client had an IRA rollover? Annuity. Extra money beyond their 401 (k)? Annuity. Worried about market volatility? You guessed it – annuity. This approach made me sick and shaped my career trajectory as a fee-only planner.

But this isn’t about bashing annuities like Ken Fisher does. When used correctly – specifically when used the way they were designed to be used – annuities can create outcomes that surprise even sophisticated investors and retirees. After 17-18 years of retirement planning, I’ve learned that bringing bias to the table and simply saying “annuities are bad” isn’t helpful.

Today, I want to walk you through four surprising benefits of annuitizing a portion of your fixed income and how this fits into well-designed retirement income planning.

The big takeaway? Retirement planning isn’t just about growing assets anymore – it’s about turning those assets into reliable, efficient, and sustainable income.

1. Lower Stress During Market Volatility: The Emotional Game-Changer

Here’s something most people don’t understand until they experience it firsthand: having an annuitized portion of your portfolio dramatically reduces stress during market downturns in retirement.

Consider this reality: if you retire at 60 and plan to live until 90, that’s a 30-year time horizon. Historically, there’s a 20% market downturn or bear market approximately once every five years. This means you could experience five or even six major bear markets during your retirement.

Bear markets hit differently when you’re retired.

When you’re accumulating wealth, you might even feel somewhat positive about a bear market – subconsciously, you know you’re buying shares at discounted prices. It’s uncomfortable, but manageable. When you’re withdrawing money for living expenses, volatility can feel nauseating.

I’ve been working with retirees for 18 years. In that time, I’ve witnessed very sophisticated retirees panic during downturns by bailing out of well-thought-out, diversified strategies right in the middle of a bear market. I’ve watched vacations get ruined, and couples argue over whether they should cut spending during market downturns.

But here’s what I’ve never seen:

I’ve never had a client with guaranteed lifetime income layered on top of other income sources – whether Social Security or a pension – say they regret securing that income stream. It’s always the opposite.

During COVID in 2020, during the 2022 downturn, and going back to 2008, when markets dropped 20% or more, clients with annuitized income consistently told me: “I’m so glad I have that guaranteed income check showing up every month.”

That predictability changes behavior, and in retirement, behavior matters infinitely more than spreadsheets.

Yes, you can hold bonds or cash for safety, but 2022 reminded us that bonds can fall double digits, and cash loses purchasing power over time. Your safe money isn’t about maximizing returns – it’s about minimizing emotional risk. And emotional risk in retirement is incredibly expensive.

2. Reduced Withdrawal Pressure: The Mathematical Advantage

This is where the math really shines, and it’s one of my favorite impacts of annuitization.

Most retirees follow traditional withdrawal frameworks. Let’s use the 4% rule as an example. Say you have $2 million invested and need $80,000 annually – that’s exactly 4%, which should theoretically work fine.

Now let’s see what happens with partial annuitization:

Instead of relying solely on systematic withdrawals, let’s say you annuitize $500,000 of your fixed income allocation. Using a conservative 7% payout rate (and I’ll explain why this is conservative in a moment), that $500,000 generates $35,000 annually in guaranteed income.

Your remaining portfolio balance is now $1.5 million, but it only needs to produce $45,000 because you’re receiving $35,000 from the lifetime income stream. Divide $45,000 by $1.5 million, and you get an effective 3% withdrawal rate on the remaining portfolio.  That reduced withdrawal rate on the invested balance could allow for better long-term growth, all because you maximized the cash flows from your ‘safe bucket.’ 

That difference matters enormously over the long term.

Why can annuities offer higher payout rates than bonds? Two reasons: mortality credits and longevity pooling. You’re not just earning bond-like returns – you’re benefiting from pooled longevity risk. Some people in the pool won’t live very long; others will live much longer. This pooling effect creates higher payout rates than you could achieve with individual bonds or CDs.

I broke down Marilyn’s real case study on YouTube: She was earning approximately 8.6% on her TIAA traditional annuity – well above the conservative 7% I used in the example above.

Surprisingly, partial annuitization increased the ending ‘legacy’ to her two adult children!  Despite dropping her liquidity after annuitizing that portion of her assets.

This higher payout rate reduces strain on your equity portfolio, which means:

  • Lower sequence of returns risk
  • Fewer forced sales during market downturns
  • More compounding potential for long-term growth

Annuities don’t just create income – they reduce selling pressure on everything else. This structural shift is often misunderstood but incredibly powerful.

The timing of this strategy matters significantly. We’ve had three consecutive years of bull market returns – double digits in the 20% range for two years, then 16% last year. But who knows how much longer this will continue?

We had about 11-12 years between 2008 and 2020 with minimal bear markets, but then just a two-year gap before the 2022 downturn. Markets are cyclical, and short-term, they’re driven by emotion and irrationality.

The question is:

  1. What’s your plan for the next bear market?
  2. Can partial annuitization help you navigate it emotionally while avoiding the need to sell riskier assets with better long-term growth potential?

3. Higher Legacy Potential: The Counterintuitive Truth

This surprises people more than anything else, and honestly, it shocked me initially, too. I spent considerable time manipulating financial planning software because I didn’t believe the results. But the math is sound and makes perfect sense once you understand it.

Annuitizing a portion of your assets can actually result in higher legacy amounts, not lower ones.

This shocks people because the common assumption is: “If I annuitize, my kids lose out because that money isn’t liquid anymore.” While liquidity does disappear with annuitization, if longevity plays out in your favor – which is the entire purpose of annuitization – the results can be dramatically different.

Here’s why: If you plan to live into your 80s or 90s, the annuity keeps paying throughout that entire period. Meanwhile, because you’ve reduced withdrawal pressure on your equity portfolio, those riskier assets with higher long-term growth potential can compound more efficiently.

In stress tests I’ve run with real case studies, including Marilyn’s situation, the numbers consistently support this outcome. For Marilyn, the breakeven point was approximately 81 years old. Beyond that point, the legacy outcome was significantly higher with partial annuitization than without it.

Legacy’s biggest threat

The biggest threat to legacy isn’t annuitization – it’s poor returns early in retirement. Poor sequence of returns risk combined with higher withdrawals damages portfolios far more than partial annuitization ever could.

If you retire into a bear market, the value of reduced withdrawal strain becomes even more powerful. I’ve seen this play out with clients who annuitized portions of their portfolios 10-15 years ago. They’ve been able to take full advantage of the bull run we’ve enjoyed since 2008, with their remaining investments growing much more efficiently because they weren’t forced to sell during downturns.

4. True Longevity Insurance: Beyond Social Security and Bonds

Most retirees over-allocate to bonds because they fear volatility. But bonds don’t solve longevity risk – they just reduce volatility temporarily.

If you live 25 or 30 years in retirement, how long will that safe bond allocation actually last?

Longevity risk is particularly real for people who take care of themselves, have good genetics, and access to excellent healthcare. As modern medicine continues to evolve and AI advances rapidly, life expectancies may increase significantly. Even if the most optimistic predictions don’t materialize, many people will still live well into their 90s or beyond.

Social Security provides powerful longevity insurance, but for many high-income retirees, it won’t cover enough expenses. This is where partial annuitization becomes valuable – it can convert part of that underutilized fixed income allocation into maximized income streams that protect against longevity risk.

The annuity will pay whether you live to 85 or 105.

I see the bond or fixed income bucket consistently underutilized by retirees. People are often afraid to commit large lump sums to annuities because liquidity disappears. This is exactly why having a comprehensive plan and strategy is crucial – this isn’t an all-or-nothing decision.

Liquidity matters. Health matters. Legacy goals matter. Interest rates, payout rates, specific annuity contracts, and terms all matter significantly.

This isn’t about annuitizing everything – it’s about intelligently designing the fixed income sleeve of your portfolio, building an income floor, creating emotional stability, and giving growth assets room to compound. That’s true retirement income planning.

Four Critical Questions to Ask Yourself

If you’re approaching retirement or recently retired and wondering whether partial annuitization makes sense, consider these four questions:

1. What is my true risk tolerance in retirement?

Really internalize this. How do you actually feel about risk – not today while you’re still working, but when you’re actually retired and watching your portfolio fluctuate? If you are retired, how do you feel when the market drops 10%, 20%, or even 30%?

2. Do I expect longevity in my family?

Consider both yourself and your spouse. Do you have good genetics, take care of your health, and have access to quality healthcare? Are you planning for the possibility of living 25, 30, or more years in retirement?

3. What percentage of my expenses are covered by guaranteed income sources?

If Social Security only covers 25% of your total expenses, that’s not substantial coverage. You could be much more subject to the sequence of returns risk than someone with higher guaranteed income coverage.

4. Am I reacting emotionally to the word “annuity,” or am I evaluating strategically?

Are you considering annuities as part of an overall retirement income plan, or are you dismissing them based on preconceived notions?

If your income stability ratio is low – meaning most expenses must come from portfolio withdrawals – you’re much more exposed to sequence risk. This doesn’t automatically mean you need annuities, but it absolutely means you should evaluate them objectively.

This is especially true if you have access to quality annuities, such as TIAA traditional products, where older vintages can offer very attractive payout rates. Before surrendering or transferring these products, understand the crediting rates, liquidity restrictions, income options, and payout rates.

The Bottom Line: Building Resilient Retirement Income

Retirement income planning isn’t about collecting the highest returns – it’s about building a resilient retirement income plan that can weather various economic storms while providing the lifestyle you want.

People who succeed in retirement aren’t those chasing performance; they’re the ones who design their plans intelligently, balancing growth potential with income security.

The mathematical advantages of partial annuitization – reduced withdrawal pressure, higher effective payout rates through mortality credits, potential legacy benefits, and true longevity protection – can create outcomes that surprise even sophisticated investors.

But remember: this strategy requires careful planning, appropriate product selection, and integration with your overall financial plan. The goal isn’t to annuitize everything, but to strategically design your fixed-income allocation to deliver maximum benefit across all your retirement objectives.

As we face potential market volatility ahead – with tariff uncertainties and the conflict in Iran – having a portion of your income guaranteed can provide the emotional stability needed to let your growth investments do what they do best: grow over time.

The question isn’t whether annuities are good or bad in isolation. The question is whether partial annuitization can help you build a more resilient, less stressful, and ultimately more successful retirement income plan.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Retirement Planning for Longevity: What If You Live to 100?

What if you retired at 60 and lived to 100? That’s a 40-year time horizon in retirement – meaning you could be retired longer than you were in the workforce. While this sounds amazing on paper, it brings about an entirely different set of challenges that most people aren’t prepared for.

Most people planning for retirement think they need their portfolio to last 15, 20, or maybe 25 years. Some conservative planners might even stretch it to 30 years. But here’s the reality: if current trends in technology and medicine continue, living to 100 might not be as far-fetched as it seems.

With AI and technology potentially helping us live longer, retirement planning for longevity becomes critical. You don’t need to save less because you might live longer – you need to be more thoughtful about how you set up your retirement plan. Longevity will be one of the biggest risks for people retiring in 2026 and beyond.

Let’s explore five specific retirement planning considerations if you’re planning for a 40-year retirement.

Building Retirement Income Planning That Lasts 40 Years

The foundation of any solid retirement plan is creating paychecks in retirement. Effective retirement income planning focuses on generating cash flow because assets that don’t generate income won’t help you pay your bills.

Your retirement plan isn’t just about your portfolio – it’s about building lifetime income that never runs out. Retirement becomes much easier when your baseline necessities and fixed expenses are covered by guaranteed income sources. People who have this foundation sleep well at night, especially when markets are volatile.

Maximizing Social Security Benefits

Social Security will likely be the biggest guaranteed lifetime income stream for most retirement plans. When considering retirement planning for longevity, delaying your benefits until age 70 becomes even more valuable. This is especially important for married couples: delaying the larger benefit maximizes the surviving spouse’s income.

Remember, when one spouse dies, the surviving spouse doesn’t receive both Social Security checks. They receive the larger of the two benefits. If you’re planning for one spouse to potentially live until 100, maximizing that larger benefit becomes critical.

Pension Survivor Benefits

If you have a pension, survivor benefit options require careful consideration. Many people want to maximize what they receive during their lifetime and select a 25% or 50% survivor benefit option.  Sometimes, NO survivor benefit is selected at all. But if one spouse passes away, not only does Social Security drop, but the pension could also drop by 50% or more.

This results in a significant reduction in income for the surviving spouse, who might live another 15-20 years. When planning for longevity, protecting the surviving spouse’s income becomes paramount.

The Role of Annuities in Guaranteed Retirement Income

Annuities have become a four-letter word for many people, but they deserve consideration in retirement planning for longevity. While there are bad products and bad salespeople in this space, the concept of guaranteed income has real value.

Here’s what’s interesting: clients who have annuities never say they wish they didn’t have that guaranteed paycheck coming in. It’s usually the opposite – during market volatility, people wish they had something safe and guaranteed that they could never outlive.

Consider breaking down your expenses into needs, wants, and wishes – or simply fixed expenses and discretionary expenses. Then figure out what percentage of your fixed expenses are covered by guaranteed income sources. If Social Security covers everything, you might not need additional guaranteed income. But if your guaranteed sources only cover 30-40% of your total expenses, that could be concerning during market downturns.

Optimizing Your Retirement Portfolio Allocation for Longevity

Traditional thinking pushes retirees into conservative portfolios because they’re “living on their portfolio.” But you’re not living on 100% of your portfolio in year one – you might be withdrawing 4-7% annually. Being too conservative creates other risks, particularly inflation and longevity risk.

The Inflation Challenge

The longer you live, the more inflation compounds. Over a 40-year retirement, inflation becomes a massive risk. The best hedge against inflation is equities – traditional stocks in your portfolio. If you trim your equity allocation too much, you might not keep pace with inflation, which could be a bigger risk than market volatility.

Rethinking the 60-40 Portfolio

The traditional 60% stocks, 40% bonds allocation has been popular for retirees, but you need to stress-test it for a 40-year retirement. Bill Bengen, the creator of the famous 4% rule, recommended a minimum of 50% in stocks, with as close to 75% stocks and 25% fixed income as possible for optimal results.

When stress testing retirement portfolio allocation strategies for extended retirements, a 60-40 portfolio sometimes carries more risk than a slightly more aggressive allocation. This isn’t about putting everything in AI stocks – it’s about a well-diversified pool of equities that can hedge against inflation and longevity concerns.

Implementing Guardrails

If you choose a more aggressive allocation, you face sequence of returns risk – the danger of a bear market in your first few years of retirement. Since nobody can time the market, guardrails become essential.

Guyton and Klinger developed four decision rules for portfolio management:

  1. The inflation rule
  2. The prosperity rule
  3. The portfolio rescue rule
  4. The portfolio management rule

Following these rules throughout retirement can dramatically increase your starting withdrawal rate while reducing the risk of running out of money. The most dangerous retirement portfolio might be the one that feels safe on paper but quietly lags behind inflation for 35-40 years.

Long Term Care Planning: Protecting Your Future

Nobody likes thinking about getting old and frail, but Father Time is undefeated. Some of us will need help with daily living activities at the end of life. Long-term care planning isn’t just about buying insurance – it’s about having a comprehensive plan.

The Reality of Care Needs

About 70% of people will need some sort of care, but the duration and type vary greatly. It might be cognitive or physical care lasting two years or ten years. This uncertainty makes planning challenging but necessary.

Beyond Just Insurance

Long-term care planning involves several strategies:

  • Dedicated pools of funds
  • Long-term care insurance
  • Home equity utilization
  • Self-funding approaches

Even Warren Buffett has long-term care insurance, despite having enough wealth to self-fund care for 100 years. Why? He doesn’t want his heirs to go through a fire sale of investments to pay for care. Insurance creates a dedicated pool of funds and allows caregivers to hire help.

The Burden Factor

One common concern among retirees is: “I never want to be a burden on my loved ones.” Many people have plenty of money for retirement and care expenses, but are afraid to spend because they worry about unexpected healthcare costs.

Long-term care insurance can give people the freedom to spend their assets and enjoy retirement, knowing they have protection against care expenses. It removes the financial and logistical burden from spouses and adult children who are also worried about their own financial security.

Understanding Retirement Spending Phases

If you’re retiring at 60 and living until 100, assuming your expenses will inflate at 3% annually for 40 years might cause you to retire too late or underspend in your Go-Go Years. Retirement actually has three distinct phases with different spending patterns.

The Go-Go Years

Early retirement represents the honeymoon phase when you’re still active and physically able to do what you want. This is when you hit those bucket list golf trips, travel the world, and experience things you wanted to do while working but didn’t have time for.

Expenses might actually increase during the go-go years due to pent-up demand for activities and experiences. This is when health is in your favor, and you can be most active.

The Slow-Go Years

After checking off major bucket list items, you enter the slow-go years. You’re still traveling and active, but maybe not as frequently. Lifestyle stabilizes, and spending typically moderates from the go-go years.

The No-Go Years

Later in retirement, you enter the no-go years when physical limitations increase. While healthcare costs might spike during this phase (hence the need for long-term care planning), studies show that retirees actually experience inflation that’s about 1% lower than general inflation over their entire retirement.

Planning for Spending Changes

This spending pattern – higher in go-go years, moderate in slow-go years, and potentially lower but different in no-go years – should influence your retirement planning for longevity. Don’t assume linear expense growth for 40 years, as this might cause you to retire later than necessary.

However, if you plan to spend aggressively in your go-go years, those portfolio guardrails become critical. You need flexibility to adjust your withdrawal rate based on market performance, especially if you retire during a downturn.

Retirement Legacy Planning and Gifting Strategies

When planning for longevity, consider that if you live until 100, your adult children might be 70-80 years old when they inherit. This reality should influence your thinking about legacy and the utility of money.

The Concept of Diminishing Utility

Money has diminishing returns as you age. If you don’t enjoy money during your go-go years, you lose the utility of those dollars. The same applies to legacy. There’s a difference between giving money when your children are struggling with mortgages, private school costs, or starting businesses versus when they’re already retired.

Giving with a Warm Hand

Consider the benefits of lifetime giving versus leaving everything as an inheritance. Wouldn’t it be meaningful to see what your beneficiaries do with gifts during your lifetime? This also helps you understand their money management skills, which can inform your estate planning decisions.

If you’re gifting money and your children are using it wisely – contributing to retirement accounts, buying homes, funding education – that validates leaving them more when you’re gone. If they’re making poor financial decisions, you might want to restructure your estate plan with more protections.  Or better yet, have some meaningful conversations with those beneficiaries while you’re still alive.

Current Gifting Opportunities

The annual exclusion allows each taxpayer to give $19,000 per recipient in 2026 without filing gift tax returns. For married couples with married children, this can add up to substantial annual gifts. These gifts also remove future growth from your estate, which is particularly valuable if you face potential estate tax issues.

The key question is: when does your legacy have the greatest utility? During your lifetime, when you can see its impact, after you’re gone, or some combination of both?

Taking Action on Your Longevity Plan

Living longer can be a blessing, but it creates significant challenges for people retiring today. With technology and medicine evolving rapidly, longevity planning becomes essential for anyone approaching retirement.

Review Your Foundation

Start by reviewing your guaranteed income sources. Look at your Social Security strategy and make sure you’re maximizing not only lifetime benefits but also surviving spouse benefits. If you have a pension, carefully consider survivor benefit options.

Stress Test Your Plan

Run scenarios assuming you live until 100. Would your current plan hold up? Does a traditional 60-40 portfolio work, or do you need 75-25 or even 80-20? Test different allocations considering both your risk tolerance and risk capacity.

Address Long-Term Care

Regardless of your wealth level, you need a long-term care plan. This includes communication about who will do what, where funds will come from, and how you’ll pay for care. The goal is to remove financial and logistical burdens from your loved ones.

Plan Your Spending Strategy

Don’t assume linear expense growth for 40 years. Plan for the realities of retirement spending phases, and if you want to spend more aggressively in your go-go years, implement guardrails to protect against sequence-of-returns risk.

Consider Your Legacy Impact

Think about when your legacy will be most useful. Consider lifetime giving strategies that allow you to see the impact of your generosity while potentially providing valuable teaching opportunities for your beneficiaries.

Retirement planning for longevity requires a different approach than traditional retirement planning. The stakes are higher, the time horizon is longer, and the strategies need to be more sophisticated. But with proper planning, a 40-year retirement can be not just financially sustainable, but truly fulfilling.

If you’re looking for help creating a retirement plan that accounts for longevity, consider working with a financial advisor who specializes in retirement income planning. The complexity of planning for a 40-year retirement makes professional guidance more valuable than ever.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Why You Should Plan for Early Retirement Even If You Don’t Plan to Retire Early

I recently met with two clients who completely changed how I think about retirement planning. Both were retiring much earlier than they had anticipated, and both situations were related to unexpected health issues. One client is now on disability, though thankfully, his wife is still working for a few more years, and he does have a disability policy in place. The other received a cancer diagnosis and is potentially retiring much earlier than planned as well.

These conversations took me back to my days studying for the RICP (Retirement Income Certified Professional) designation. There was a statistic that really resonated with me. After reviewing my coursework and notes, I found it: 51% of retirees retired earlier than anticipated. That’s right! There’s a better than 50% chance that whatever age you think you’re going to retire, you’re going to retire earlier.

The number one reason? Health issues. This reality made me realize something important. We need to stop planning for a “normal” retirement age in our assumptions, even if we end up working until 70 or 65.

The Reality of Uncontrollable Retirement Factors

Let me share another example. I’m working with a client right now who’s 62. He plans to work at least until 65, when he becomes eligible for Medicare. During the pandemic, he moved from New York to Florida. The plan was to work remotely, feel good, and coast into retirement while continuing to build his assets.

Unfortunately, the company is bringing everyone back to the office. He has two choices.

  1. Move back to New York
  2. Pick a random satellite location in Florida to work in

Neither of these is convenient based on where he now resides. So, he might retire this year.

My point is that things outside our control often lead people to retire earlier than planned. The inputs you give your financial advisor, including “I want to work until 70,” significantly impact the calculations on:

  • How much you need to save for retirement
  • How much risk you need to take
  • How long your portfolio needs to last while you’re spending it down

I don’t think it’s prudent to build those optimistic assumptions into your plan.

I recommend assuming you’ll retire at 62, 63, or 64, even if you love what you do, and genuinely want to work until 70. Then control what you can control.

Understanding Why People Retire Early

The research shows us exactly why 51% of people retire earlier than expected. Here’s the breakdown:

46% cited health reasons – This is the largest category and completely uncontrollable. Whether it’s a sudden diagnosis, chronic condition, or physical limitations, health issues force many people out of the workforce earlier than planned.

30% were laid off or offered an early retirement package – Again, this is largely uncontrollable. Company restructuring, economic downturns, or industry changes can force your hand regardless of your personal timeline.

11% needed to care for a loved one – Caring for aging parents, a sick spouse, or other family members is another uncontrollable factor that can derail retirement plans.

When you add these three categories together, that’s 87% of early retirees who left work due to circumstances beyond their control. This is why early retirement planning makes sense for everyone, not just those dreaming of early retirement.

What Changes When You Plan for Early Retirement

If you’re 55 and had been planning to work until 70, you probably had a pretty nice-looking financial plan. You’d get maximum Social Security benefits at 70, which would line up perfectly with when you start portfolio withdrawals, creating no income gap. But what happens when you plan to retire at 60 or 62 instead? Several things change, and you need to prepare for them.

1. You Need to Save More and Invest More

This one’s pretty straightforward. A good saver typically saves about 10-15% of their gross income. But if you’re planning for early retirement – even if you don’t actually retire early – I’d argue you need to save closer to 20-25% of your gross income.

I’m personally planning to have financial independence before I turn 55. Now, I love what I do and don’t see myself at 60 doing nothing. I’m having more fun in my career today than I ever have. But by planning for retirement significantly earlier, I’m building the option to quit if I want to or sell my business if I want to. That’s the power of early retirement planning – it gives you choices.

2. Healthcare Before Medicare

Medicare eligibility starts at 65, and many people work until then specifically because they’re afraid of what they’ll do for health insurance if they retire at 60, 61, or 62. But here’s what most people don’t realize: buying private health insurance or through the Affordable Care Act isn’t that complicated.

I do it with my family. It’s not cheap, but if you’re retired, your taxable income is going to be pretty low. You might have some interest income from bonds or high-yield savings accounts, maybe dividends from stocks or ETFs, perhaps Social Security or a pension. But generally, folks who retire at 60-62 have relatively low taxable income.

This low income often qualifies you for ACA subsidies. If your income is relatively low, your health insurance costs could be next to nothing – possibly less expensive than what you were paying when you were working. Don’t let healthcare force you into a job you hate until 65 just because everyone else talks about working until Medicare kicks in.

3. Stay Aggressive with Your Investment Strategy Longer

This is a mistake I see repeatedly. People preparing for retirement think, “I need this money in one, two, three, or four years, so I need to dial back my risk.” Or worse, they pick a target-date fund for 2025 because they want to retire in 2025, and these funds force you into being super conservative.

By doing this, you’re bringing inflation and longevity risk into the picture more than necessary. When I say stay aggressive, I’m not talking about putting 100% in stocks or betting everything on high-risk investments. I’m talking about maintaining a higher equity allocation than traditional retirement advice suggests.

If the benchmark portfolio for retirees is 60% equities and 40% fixed income, maybe you stay at 75% or 80% equities for the first phase of retirement. This helps you capture returns early on (assuming the market cooperates), continue building your portfolio, and protect against inflation and longevity risks that come with retiring earlier.

4. Plan for Longevity

If you retire at 60 and have longevity in your genes or excellent health, there’s a possibility you or your spouse may live 30-35 years in retirement. This goes hand in hand with staying aggressive longer – you may need to maintain a fairly aggressive investment approach throughout your retirement years to protect against inflation and longevity risks.

You also need a sound Social Security strategy to maximize survivor benefits should one spouse pass away before the other. That Social Security benefit will be one of the best inflation hedges in your retirement income plan, so you’d better maximize it if you plan to live a long life.

5. Develop a Sound Income Distribution Plan

If you plan to delay Social Security until 70 to get maximum benefits but retire at 60, that’s a potential 10-year gap where you’ll have no Social Security income. You need to replace that income with portfolio withdrawals and distributions.

Preparing your portfolio for income distributions is critical. You need a disciplined, unemotional, repeatable process to generate cash flow monthly or quarterly. We’ve all heard about buying low and selling high. When you’re accumulating wealth and saving in your 401(k) or IRA, it’s all buying – you’re purchasing shares of investments.

But in the distribution phase, you’re not just buying anymore. You’re turning the portfolio on for income. Some will come from cash flows such as interest and dividends, but others will come from selling investments each month, quarter, or year. Having a disciplined process so you’re not selling the wrong thing at the wrong time is critical for maintaining portfolio longevity when retiring early.

What Happens If You Plan Early But Don’t Retire Early?

Let’s say you do all these things and prepare to retire early, but you don’t actually retire early. What’s the impact? Nothing really negative that I can think of.

The main drawback is that you might need to tighten your belt more. If you’re struggling to save 10-15% and early retirement planning calls for 20-25%, that might be tough without working a second job or getting a significant pay raise. But if you have the capacity to save and invest more, there are only benefits.

You could potentially spend or gift more in retirement. Maybe you could build your dream home or have a vacation home free and clear. You might have better opportunities to leave a financial legacy for your children and grandchildren. You could have different risk capacity – maybe you’ve saved more than enough for retirement, which allows you to take on more investment risk to build an even larger legacy for the next generation or for charitable goals.

Maybe this also allows you to set aside funds for self-funding long-term care. Long-term care risk is one of the top risks for any retiree today – those healthcare costs at the end of life and the potential burden on loved ones. If you’ve saved more than you need for your own retirement, you can potentially self-fund long-term care.

The Benefits of Early Retirement Planning for Everyone

The beauty of early retirement planning is that it benefits everyone, regardless of when you actually retire. It’s about building financial security and creating options in your life.

When you follow early retirement planning principles, you’re essentially stress-testing your financial plan. Instead of assuming everything will go perfectly – that you’ll work until 70, stay healthy, never get laid off, and never need to care for family members – you’re planning for reality.

This approach gives you financial flexibility. If you do face unexpected health issues, job loss, or family caregiving responsibilities, you’ll have options. You won’t be forced into desperate financial decisions because you’ll have built a solid foundation.

Even if none of these challenges arise and you work until your planned retirement age, you’ll be in a much stronger financial position. You’ll have more saved, better investment strategies, and multiple backup plans. That’s not a bad problem to have.

Taking Control of What You Can Control

The key insight from all of this is focusing on what you can control versus what you can’t.

You can’t control whether you’ll have health issues, whether your company will downsize, or whether you’ll need to care for aging parents. But you can control your savings rate, your investment strategy, your distribution process, and your ability to manage risk before and during retirement.

Let’s control what we can and plan for the worst while hoping for the best. That’s what smart early retirement planning is really about – not necessarily retiring early, but being prepared for whatever life throws your way.

And if you want help planning for your retirement, we’d love to help you.  At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

6 Smart Retirement Strategies When You’ve Oversaved

If you’re like most high achievers I work with, you probably spend way too much time comparing yourself to others. Maybe you’re scrolling through social media, seeing someone’s luxury vacation photos, or reading anonymous posts about retirement savings that make you question whether you’ve done enough. But what if I told you that many successful people face the opposite problem—they’ve actually saved too much for retirement?

The Gap and the Gain

This reminds me of a powerful concept I discovered in Dan Sullivan’s book “The Gap and the Gain.” Most of us live in “the gap.” We’re constantly measuring where we are against where we want to be in the future. We’re always chasing the next milestone, the next savings target, the next achievement. But there’s another way to think about your progress: measuring backwards from where you started.

When I think about my own business journey, I can either

  • Focus on how far we still need to go to reach our future goals
  • Celebrate many of the achievements that seemed impossible when we started in February 2021

The same principle applies to your retirement planning. Instead of worrying about whether you have “enough,” consider how far you’ve come from your starting point.

Many successful professionals find themselves overfunding their retirement accounts without realizing it. You’ve been disciplined savers for decades, making sacrifices and staying focused on your goals. The challenge with overfunding isn’t having too much money. It’s knowing how to optimize it for maximum impact during your lifetime and beyond.

What Does It Mean to Be Overfunded for Retirement?

Being overfunded for retirement means your financial plan shows you have significantly more resources than you need to maintain your desired lifestyle throughout retirement. In technical terms, this typically means having a Monte Carlo simulation success rate of 90% or higher.

What Is A Monte Carlo Simulation?

A Monte Carlo simulation runs 1,000 different hypothetical scenarios with varying market returns to stress-test your retirement plan. If you’re at 90%, that means in 900 out of 1,000 scenarios, you never need to make lifestyle adjustments. The remaining 100 scenarios represent extreme market conditions. For example, the “lost decade” from 2000 to 2010, when U.S. stocks were negative due to the dot-com crash and Great Recession.

Using Monte Carlo simulation results, many retirees and pre-retirees discover they have more capacity than expected. What’s particularly telling is looking at the median trial—scenario number 500—which shows your likely portfolio value at the end of your life. For overfunded retirees, this number is often two to three times their starting portfolio value, even after decades of spending on travel, gifts, and lifestyle expenses.

Here’s what this means in practical terms. If you have $2 million today, and your median ending portfolio value is $4-6 million, you’re leaving substantial wealth on the table during your lifetime. That money could be used to

  • Make memories with loved ones
  • Support family members
  • Make charitable impacts while you’re alive to see them

The reality is that $2 million today doesn’t feel as wealthy as it once did. Inflation has changed the purchasing power dramatically. In many parts of the country, a million dollars barely covers a starter home. But when your financial plan shows you’ll likely end with significantly more than you started with, despite living well, you have options that most retirees don’t.

Strategy 1: Retire Earlier Than You Initially Planned

The most obvious benefit of overfunding is the ability to retire earlier than you originally planned. I recently worked with a client in their 50s who assumed they needed to work until 62 to maximize their pension and start Social Security early. After running their numbers, we discovered they could retire today if they wanted to.

Now, I’m not suggesting you should retire just because you can financially. Retirement creates a lot of free time and mental space that needs to be filled with purpose. When you’re on the treadmill of working life, it’s difficult to step back and really think about what you want to do in your next chapter. Who do you want to spend time with? Where do you want to live? What kind of impact do you want to make?

But knowing you have the financial freedom to retire early opens up possibilities you might not have considered. Maybe you’ve always wanted to start that business venture, write a book, or serve on a nonprofit board. Perhaps you want to pursue a “second act” that’s more about passion than paycheck. When you’re focused on retirement planning over 50, overfunding becomes a real possibility that can fund these dreams.

Early retirement also allows you to gradually dial back your work commitments rather than stopping abruptly. You might

  • Reduce your hours
  • Take on consulting projects
  • Redirect the money you were saving for retirement toward other goals

The key is having a plan for what you’re retiring to, not just what you’re retiring from.

Strategy 2: Spend More Intentionally Without Guilt

You’ve earned the right to spend without guilt. After decades of disciplined saving and careful budgeting, it’s time to upgrade your experiences and lifestyle in meaningful ways.

This might mean flying first class instead of coach, especially on longer trips where comfort makes a real difference. Or staying longer at destinations—turning a week-long vacation into a month-long adventure. Many of my clients discover they can book nicer accommodations, take their entire family on trips, and create experiences they’ll remember forever.

The concept of “giving with a warm hand versus a cold one” also applies to experiences. Instead of just leaving money to your children and grandchildren, create memories together while you’re alive to enjoy them. Things like

  • Taking your family to Europe
  • Renting a house for everyone at the beach
  • Funding educational trips for grandchildren

These experiences often mean more than a future inheritance.

Intentional spending also includes services that free up your time for more important activities. Maybe you hire a housekeeper, landscaping service, or personal assistant. If you love golf but hate yard work, paying someone else to maintain your lawn gives you more time on the course. These services aren’t luxuries when they allow you to focus on what truly matters to you.

The psychological shift from “I can’t afford that” to “Is this worth it to me?” is profound. When your financial plan shows you have more than enough, spending decisions become about value and priorities rather than affordability.

Strategy 3: Take More Investment Risk for Greater Returns

What I’m about to say may seem counterintuitive. Having excess retirement funds actually gives you the capacity to take on more investment risk if you choose. When your Monte Carlo simulation shows you’ll be fine, even in market downturns lasting five or six years, you can potentially earn higher long-term returns.

Higher returns over 10, 15, or 20 years can significantly increase your ability to make an impact during your lifetime and leave a larger legacy. More money means more options for family gifts, charitable giving, and lifestyle enhancement.

This doesn’t mean being reckless with your investments. It means understanding that you have the financial capacity to weather market volatility because your spending needs are well-covered even in worst-case scenarios. You can potentially allocate more to growth investments and less to conservative bonds or cash.

The key is matching your risk capacity (what you can afford to lose) with your risk tolerance (what you’re comfortable losing). Being overfunded gives you more flexibility in this equation.

Strategy 4: Take Less Investment Risk and Sleep Better

On the flip side, being overfunded also gives you the option to reduce investment risk significantly. If you’ve been riding the market roller coaster for 30 years and you’re tired of the volatility, you’ve earned the right to step off.

This is the “if you’ve won the game, stop playing” approach. You can

  • Dial back your stock allocation
  • Increase bonds and cash
  • Focus on preserving what you’ve built rather than growing it aggressively

Sure, your returns might be lower. However, they’ll be more predictable, and you’ll still have more than enough to fund your lifestyle.

Many clients find this approach appealing as they get deeper into retirement. The peace of mind that comes from knowing your portfolio won’t drop 30% in a market crash can be worth more than the potential for higher returns.

Additionally, if you have guaranteed income from pensions or Social Security covering your basic expenses, you have even more flexibility with your investment portfolio.

Strategy 5: Gift More During Your Lifetime

The ability to make a meaningful impact on your family while you’re alive to see it is where overfunded retirement really shines. For 2025, you can gift up to $19,000 per year per recipient without filing any gift tax forms. For married couples, that’s $38,000 per recipient, and if you have multiple children and grandchildren, the numbers add up quickly.

But lifetime gifting isn’t just about the money—it’s about the conversations and lessons that come with it. When you give your adult children or grandchildren money, use it as an opportunity to teach them the financial principles that got you to where you are today. Explain

  1. Why you’re gifting the funds
  2. What you hope they’ll do with the money
  3. How you built the wealth you’re now sharing

These conversations help you understand what kind of stewards your beneficiaries will be with larger inheritances. If you gift money for a down payment but they spend it on luxury items instead, that tells you something important about their financial maturity and decision-making.

Charitable Giving

Charitable giving is another powerful option. If you’re over 70½, you can make qualified charitable distributions directly from your IRA up to $107,000 annually (in 2025) without paying taxes on the withdrawal. This is particularly valuable if you don’t need your required minimum distributions for living expenses but are forced to take them anyway.

Donor-Advised Funds

Donor-advised funds offer another flexible approach. You can bunch several years of charitable gifts into one tax year to

  1. Exceed the standard deduction threshold
  2. Get the immediate tax benefit
  3. Distribute the funds to charities over time

Strategy 6: Leave a Multi-Generational Impact

Some people prefer not to make their children’s lives “too easy” during their lifetime. It’s the belief that a healthy dose of struggle builds character. If this describes your philosophy, being overfunded gives you the opportunity to impact multiple generations with the wealth you’ve created.

Think about the power of compound growth over decades. A $2 million portfolio that grows to $8-10 million by the time you’re 90 could

  • Fund college educations for great-grandchildren not yet born
  • Start family businesses
  • Create charitable foundations that operate in perpetuity

If this is your plan, you need to be extremely thoughtful about the structure.

  1. How will the money be distributed?
  2. At what ages can beneficiaries access funds?
  3. What are the funds intended for?
  4. Should assets be held in trust with professional management?

More importantly, you need to have conversations with your family about how you built this wealth and what it represents. Share the story of your sacrifices, discipline, and decision-making. Help them understand that this money isn’t just a windfall—it’s the result of decades of intentional choices.

I think about my great-grandfather, who built a rice mill business in China and Burma. His multi-generational impact allowed my father to attend prestigious schools in India and eventually immigrate to the United States. That legacy shaped our entire family’s trajectory across multiple generations.

However, be aware of the tax implications of leaving large retirement accounts to the next generation. With the 10-year distribution rule for inherited IRAs, your beneficiaries may face substantial tax bills if they’re successful in their own careers. Strategic Roth conversions during your lifetime can help minimize this tax burden and preserve more wealth for your family.

Making the Most of Your Overfunded Retirement

If you find yourself being someone who has saved diligently and has more than enough for retirement, you have options that most people don’t. The key is shifting from a scarcity mindset to one of abundance and intentionality.

Remember the Gap and the Gain concept. Instead of constantly measuring yourself against others or future goals, take time to appreciate how far you’ve come. You’ve achieved something remarkable through decades of discipline and smart decisions.

You may choose to

  • Retire early
  • Spend more intentionally
  • Adjust your investment risk
  • Increase your gifting
  • Plan for multi-generational impact

The most important thing is making conscious choices about your wealth rather than letting it accumulate by default.

Your financial plan isn’t a one-time event. It’s an ongoing process that should evolve as your circumstances and priorities change. What feels right in your first year of retirement might be different after five or ten years of experiencing financial security.

The goal isn’t just to have enough money for retirement. The goal is to use your resources in ways that align with your values and create the kind of impact you want to make during your lifetime and beyond. When you’re overfunding retirement, you have the luxury of choice. Make sure you’re making those choices intentionally.

Ready to discover if you’re overfunded for retirement? A comprehensive financial plan can help you understand your true capacity and explore strategies to optimize your wealth for maximum impact during your lifetime.

How We Can Help

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to

  1. Maximize your retirement spending
  2. Minimize your lifetime tax bill
  3. Worry less about money

You can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.




Bear Market Preparation: 14 Retirement Planning Moves to Protect Your Wealth

The markets have recovered all of the losses from “Liberation Day,” AND SOME, so far in 2025.  Many investors have stopped worrying about tariffs, and are now looking at a high likelihood of the Fed cutting interest rates at their next meeting in September.

However, it’s crucial to begin preparing for the next bear market or recession before they actually happen. You’d rather be in proactive mode, rather than reactive mode!  In this article, I’ll discuss 14 retirement planning moves to help you prepare for the next bear market because it’s not a question of if, but when.

What Is a Bear Market?

Before diving into preparation strategies, let’s clarify what a bear market actually means. A bear market is defined by a decline of 20% or more in one of the major stock indexes over at least two months. A correction, on the other hand, is a 10% decline from previous highs.

Since 1964, the S&P 500 has experienced 27 corrections. In eight of those 27 instances (about 30%), the correction led to a bear market. Typically, bear markets last about 10 months on average, though some have lasted significantly longer.

Some notable bear markets include:

  • The Great Depression (1929-1932): The Dow dropped 86%
  • The Global Financial Crisis (2008): The S&P 500 declined by about 56%
  • The Dot-com Bubble (2001-2002): The S&P 500 fell about 50%, while the NASDAQ dropped almost 78%
  • The COVID-19 Pandemic (2020): The S&P 500 declined about 34% but fully recovered two months later
  • The Triple Bear Market (2022):  Stocks, bonds and cash were all in bear market territory as of June of 2022.  It lasted about 9 months, but the inflation effects are still lingering. 

Bear markets are part of the economic cycle. We experience booms and busts, expansions and contractions, peaks and troughs. With current concerns about tariffs, geopolitical conflicts, inflation, and interest rates, there’s significant uncertainty in the markets.

Now, let’s explore 14 strategies to prepare for the next bear market.

1. Prepare Your Mindset

Bear market preparation begins with your mindset. Bear markets are a normal part of investing. You didn’t accumulate seven figures by being scared of investing. You took on risk to achieve your desired returns.

The challenge is that as you get closer to retirement, volatility becomes more concerning because you’re transitioning from accumulation to needing to live on your portfolio. This is completely normal.

Remember that bear markets happen on average about every five years. Even when you retire, you’ll need to keep some money invested in the stock market to keep pace with inflation. If you have a 30-year retirement horizon, you can expect to live through approximately six bear markets during retirement.

2. Prepare Your Investment Portfolio

One of the most critical aspects of preparing for a bear market is having a properly structured investment portfolio. It’s easier to think about this during periods of volatility, but it’s even more important to implement when things are going well.

Think back to 2023 and 2024, when the S&P 500 delivered back-to-back returns exceeding 20%. After Trump won the election in late 2024, there was almost a euphoria in the markets with expectations of reduced regulations, tax cuts, and increased domestic manufacturing. This “Trump bump” created a situation where things were running hot—a common occurrence toward the end of a boom cycle.

Instead of riding that wave based on emotion, a disciplined, unemotional, repeatable process of rebalancing can prevent you from becoming overexposed to risk. This means:

  • Having specific targets for each asset class
  • Trimming winners and taking gains off the table
  • Buying underweight positions that might be underperforming

You can’t magically implement this in the middle of a bear market. You need to enter each year with a defined investment policy statement and strategy for each account—your taxable brokerage account, traditional IRA, 401(k), and Roth accounts.

For example, if your S&P 500 allocation increases significantly due to strong performance, consider reallocating some of those gains to areas that may have underperformed, such as fixed income or cash. This disciplined approach helps prevent emotional decisions when markets turn, which typically happens quickly.

3. Build Your War Chest

Investing in a down market requires having cash available. Building up your “war chest” is crucial for both protection and opportunity.

If we enter a bear market, there’s a decent chance we’re already in a recession or heading into one. The market is a leading indicator, typically declining before economic data confirms a recession. Having cash on hand helps if you lose your job or face reduced income during economic downturns.

But if you’re fortunate enough to keep your job during a bear market, cash becomes king for finding buying opportunities. As Warren Buffett famously said, “Be fearful when others are greedy and be greedy when others are fearful.”

Consider this eye-opening statistic: 56% of the best days in the S&P 500 occur during bear markets. Another 32% happen in the first two months of a bull market. That means 88% of the best market days happen when most people aren’t feeling optimistic about investing.

This war chest could be:

  • Cash within your investment portfolio
  • Cash alternatives in your investment portfolio
  • Increased contributions to retirement accounts during downturns
  • Front-loading contributions to take advantage of buying opportunities

It won’t feel natural to add money when markets are down. Imagine being told to add more money to your portfolio during the pandemic, when it had already dropped 30-40%. Most people want to take money out, not put more in. But that’s precisely when the greatest opportunities arise.

4. Plan Your Retirement Cash Flow Sources

Having a plan for where your retirement cash flows will come from is essential during market volatility. Let’s use a simple example:

If you have a $1 million portfolio with a 60/40 split ($600,000 in equities and $400,000 in fixed income), and you need $40,000 annually (a 4% withdrawal rate), you effectively have 10 years of income in fixed income without touching your stock portfolio.

Given that bear markets typically last about 10 months, with the longest in our lifetime being around five years, having 10 years of income in fixed income should provide significant peace of mind.

Additionally, if your portfolio generates income through interest and dividends—let’s say 2.5% overall—and your withdrawal rate is 4%, you only need to rely on capital sales for about 1.5% of your portfolio. That’s manageable even during market downturns.

During strong markets, like 2024, you can generate income by trimming gains from equities. When markets turn, as in early 2025, you can draw from fixed income or cash alternatives while waiting for stocks to recover.

5. Optimize Your Social Security Strategy

Social security planning is a critical component of retirement in a bear market. The timing of when to claim Social Security can significantly impact your retirement income floor.

If you delay Social Security until full retirement age or age 70, you’ll have a higher benefit base that will also receive cost-of-living adjustments. This creates a higher guaranteed income floor in retirement, which provides peace of mind during market volatility.

For example, if 60% of your cash flow needs come from fixed income sources like Social Security, you won’t need to rely as heavily on your investment portfolio during volatile periods.

If you’ve already retired and planned to delay Social Security until 70, but then face a bear market or recession, you have options. You could elect to start benefits earlier and then:

  1. Continue them indefinitely, or
  2. Stop them at full retirement age and then preserve delayed retirement credits until age 70

This flexibility allows you to adapt your strategy based on market conditions while still maintaining long-term income security.

6. Consider Part-Time Work

While not everyone’s favorite suggestion, considering part-time work during market downturns can be a valuable option. The goal in retirement is for work to be optional, not mandatory. However, even if you don’t mathematically need to work to preserve your portfolio, it might provide peace of mind.

Instead of drawing down your portfolio during a bear market or recession, finding fulfilling part-time work or a side hustle can reduce your withdrawal rate and put less pressure on your investments while they recover.

7. Evaluate Roth Conversion Opportunities

Roth conversions during market downturns present an interesting opportunity. When converting from pre-tax to Roth accounts, you pay taxes on the converted amount. If market values are down, you can convert the same number of shares at a lower tax cost.

If you believe in the long-term prospects of your investments, converting when valuations are down allows the eventual recovery to happen in the tax-free Roth environment rather than in your tax-deferred accounts.

The challenge is timing—you want to convert at the right moment. If you convert and the market continues to decline, you’ve paid taxes on a higher value. Typically, Roth conversions are best done toward the end of the year when you have a clearer picture of your annual income and tax situation.

8. Consider Gifting Securities at a Discount

Similar to Roth conversions, gifting stock or securities during market downturns can be advantageous if you regularly gift to family members or irrevocable trusts. Instead of gifting securities at higher values, you can gift them when values are down, allowing for a lower gift amount.

The eventual appreciation will be on the recipient’s balance sheet rather than yours. The value of this strategy depends on how much you’re gifting and the long-term outlook for the investments.

9. Implement Tax Loss Harvesting

Tax loss harvesting is a powerful strategy during market downturns. This involves selling investments at a loss in a taxable brokerage account (not retirement accounts like IRAs or 401(k)s) to realize the loss for tax purposes.

These realized losses can offset capital gains in the current year or be carried forward to offset gains in future years. If you have no capital gains, you can deduct up to $3,000 against ordinary income annually.

The key is to replace the sold security with something similar immediately but not “substantially identical” to maintain your market exposure. For example:

  • You can’t sell Apple and buy Apple back (that’s substantially identical)
  • You could sell Apple and buy Microsoft (not substantially identical)
  • For funds, you might switch from a Fidelity S&P 500 fund to a Vanguard Large Cap stock fund (also not substantially identical).

The “wash sale rule” prevents you from claiming the loss if you buy the same or substantially identical security within 30 days before or after the sale.

During the 2022 bear market, our clients built up significant tax-loss “war chests” that they’re still using to offset gains or reduce ordinary income.

10. Create Guaranteed Income with Fixed Annuities

Leveraging annuities to create guaranteed income can provide significant psychological benefits during market volatility. Social Security is essentially an annuity, but additional guaranteed income sources can enhance your retirement security.

The higher your guaranteed income floor, the more peace of mind you’ll have when markets are volatile. If guaranteed sources cover 60-70% of your income needs, short-term market fluctuations become less concerning.

For example, one client recently activated an annuity income stream with a 7.6% payout rate—significantly higher than what would be prudent to withdraw from an investment portfolio. This guaranteed income, combined with Social Security, covers about 70% of her cash flow needs, providing tremendous peace of mind during market volatility.

11. Leverage Cash Value Life Insurance

If you already have cash value life insurance, it can serve as a valuable resource during market downturns. It takes years or decades to build significant cash value, but once established, it can be a stable asset during volatility.

Unlike stocks or bonds, cash value in traditional life insurance policies typically doesn’t decrease in value during market downturns. You can access this cash through withdrawals, partial surrenders, or policy loans while waiting for markets to recover.

During the March 2020 market bottom, some investors used policy loans from their life insurance to invest in the market at discounted prices, capitalizing on the opportunity while maintaining their existing investments. Or if retired, they used that cash value as income instead of tapping into their stock allocations.

12. Consider Home Equity Options

Your home equity can serve as a last line of defense during severe market downturns. Options include:

  • Home Equity Line of Credit (HELOC): Opening a HELOC before things get bad provides access to a cash reserve that you don’t have to use unless necessary. While there are interest costs if you tap into it, having $100,000-$200,000 available can provide significant peace of mind.
  • Reverse Mortgage (if over 62): This can create a cash bucket similar to a HELOC without requiring monthly payments.

Home equity is often an underutilized asset class. Creating liquidity within your home equity can provide additional security if stock and bond markets experience severe downturns.

13. Trim Concentrated Stock Positions

Market downturns can present good opportunities to reduce concentrated stock positions. Many clients have significant concentrations in individual stocks, often from employer stock plans. These positions can be difficult to sell for two reasons:

  1. Behavioral attachment: The stock helped build their wealth, and they’re emotionally connected to it.
  2. Tax consequences: Selling may trigger significant capital gains taxes.

During market volatility, stock prices decline, making the tax consequences less painful. A position that might have generated $100,000 in taxes during a bull market might only generate $50,000 in taxes after a decline.

For example, a client with 45% of their portfolio in Microsoft stock is using the recent volatility to reduce their concentration to 30% with minimal capital gains due to the market decline.

If you have concentrated positions (generally defined as over 5% exposure to a single stock), market downturns can be an opportune time to rebalance toward a more diversified allocation with a lower tax bill.

14. Do Nothing

Sometimes, the best strategy during market volatility is to do nothing. Acting on emotion or making rash decisions during volatile periods can significantly damage your long-term plan.

If you’re uncomfortable with the 13 strategies mentioned above, it might be better to simply wait it out rather than make emotional decisions—unless you completely lack a financial planning strategy to begin with. In that case, consulting with a professional advisor would be beneficial.

Doing nothing is certainly better than abandoning a well-diversified, thoughtful investment strategy due to short-term market movements.

Final Thoughts on Bear Market Preparation

I don’t want to dismiss anyone’s emotions during volatile markets. Transitioning from working to retirement is already emotionally charged, with concerns about aging, health, and this next chapter of life. Market volatility adds another layer of stress.

However, having a trusted partner to lean on during these times can make all the difference. Someone who can coach you to stick to a long-term, disciplined strategy can help you navigate market turbulence with confidence.

Remember, bear markets are not a function of if, but when. With proper bear market preparation, you can not only protect your retirement savings but also potentially capitalize on opportunities that arise during market downturns.

As market volatility continues to make headlines, there’s no better time than now to evaluate which of these bear market preparation strategies align with your retirement goals and take decisive action to protect the financial future you’ve worked so hard to build.

This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.




6 Retirement Planning Strategies for When You’re Feeling Behind

Are you feeling a little bit behind regarding your retirement plans? Well, you are not alone. In fact, over 57% of Americans today are feeling behind relative to their goals for retirement. In this blog post, we’re going to talk about six retirement planning strategies that may improve your potential outcomes for a successful retirement.

Retirement Planning: Why 57% of Americans Feel Behind

I’m sure each participant in this study has their own story.  However, the fact is that we live in a world of comparing ourselves to others, unfortunately.  Therefore, regardless of how well you’ve saved and invested up to this point, it’s completely normal to feel “behind.”  With that said, some of you truly are behind. Whether you were focused on

  • Building your careers or businesses
  • Raising children (which are VERY expensive)
  • Paying for private school or college
  • Caring for aging parents

There are countless reasons as to why you might be behind. 

However, implementing effective retirement planning strategies can significantly improve your financial outlook, even if you’re starting late. The transition from active income to passive income can be scary for many people. Additionally, it’s the fear of spending down the portfolio and worrying about uncertain events down the road that leads to serious anxiety as you approach quitting your day job.

At the same time, many folks tend to sacrifice those early years of retirement, what I like to call the “Go-Go Years.” This period of time is when you’re healthy and physically able to do the things you may want to do – traveling the world or spending precious time with your grandkids, whatever that might be.

I believe there must be a healthy dose of cautious optimism to implement a successful retirement plan. 

Let’s dive into six strategies that can help improve your retirement outcomes, give you greater peace of mind, and provide greater confidence as you approach this next chapter.

Strategy 1: Increase Savings Rate and Maximize Contributions

Let’s start with the low-hanging fruit.  Saving more is something primarily in our control, and certainly can move the needle if you have a few years left until you plan to retire.  Catch-up contributions are powerful retirement savings strategies for those over 50 who need to accelerate their nest egg growth. If you’re over 50, there are catch-up retirement plan contributions available for 401(k) plans as well as individual retirement accounts. Once you hit 55, there’s also a catch-up for Health Savings Accounts (HSAs).

401(k) Contribution Limits

If you’re over 50, you can contribute $31,000 into a 401(k) plan for employee contributions in 2025 (this includes the $7,500 catch-up for ages 50+). That’s important to note because I’ve seen people make this mistake before. They say, “I’m putting in $20,000 and my employer matches me $11,000, so I’m maxing my 401(k).”

That’s actually not true. The $31,000 is only related to employee contributions. Employer contributions are on top of that.

The total contribution limit in 2025 for ALL sources (employee, employer, and voluntary after-tax) is $77,500 for 2025.  This includes the $7,500 age 50+ catch-up contribution.

This applies to 401(k)s, 403(b)s, Thrift Savings Plans if you’re in the federal government, and 457 plans if you have one available.

Super Catch-Up Contributions

Thanks to the Secure Act 2.0, there’s now a “super catch-up contribution” available. Instead of the $7,500 extra that you can put into these plans, you can put in $11,250 if you’ve turned 60, 61, 62, or 63 in 2025 and beyond. That’s an additional $3,750 on top of the regular catch-up.

IRA Catch-Up Contributions

An Individual Retirement Account has a maximum contribution of $7,000 per year, whether it’s a Traditional or Roth account. If you put $3,500 into a traditional IRA, you can only put $3,500 into a Roth IRA.

If you’re over 50, you get an extra $1,000 catch-up, bringing your total to $8,000.

There are income thresholds you need to consider if you are looking to contribute to a Roth IRA or make a tax-deductible contribution into a Traditional IRA.  So, make sure to consult with your tax professional and financial advisor to confirm these limits.

Mega After-Tax Contributions

Many employers today are adopting what’s called the Mega After-tax Roth Contribution in their 401(k) plans. This allows for additional contributions beyond the employee and employer amounts, up to the total limit of $77,500 (for folks over 50).

Example:

If you’re putting in the max employee contribution of $31,000 and your employer matches $10,000, you’re at $41,000. You could potentially put up to an additional $36,500 into the 401(k) plan on an after-tax basis. 

The key factor, however, is making sure that after-tax contribution can be converted to Roth immediately!  This can often be done within the 401 (k) or to your Roth IRA.  Additionally, your plan administrators will calculate the exact amount allowed to the after-tax side, and this will be spelled out in your benefits details. 

This essentially allows a highly compensated employee to contribute tens of thousands of dollars into the Roth portion of their assets without worrying about the income phaseouts associated with Roth IRA contributions. 

HSA Contributions

HSAs are my favorite investment account for retirement because you get the trifecta tax benefit:

  • Pre-tax contributions (fully deductible regardless of income)
  • Tax-free growth
  • Tax-free distributions (as long as they’re used for qualified medical expenses)

Once you turn 55, you get an extra $1,000 catch-up. In 2025, for individual plans, you can contribute $4,300 plus $1,000, totaling $5,300. For family plans, it’s $8,550 plus $1,000, totaling $9,550.

Unlike a Flexible Spending Account (FSA), these accounts do not need to be emptied on an annual basis.  Therefore, if you can pay medical costs out of pocket for the year, it’s wise to allow the triple tax benefits to work in your favor until you fire your boss and retire.  This will serve as a nice tax-free income during retirement, or even perhaps serve as a self-funding mechanism for long-term care costs. 

Just make sure you spend these accounts during your lifetime, as any amounts left to children will be a tax bomb for them!

Strategy 2: Working Longer to Improve Retirement Outcomes

Working longer probably makes more of an impact than any of these other strategies in the long term. Delaying retirement by just one, two, or three years can significantly improve your financial outlook.

This doesn’t have to be in your current job. Maybe you’re a physician, working an intense tech job, or in a physically demanding blue-collar position that you can’t continue much longer. You could retire from your current role but transition to something else, perhaps even part-time.

Having one or both spouses doing something part-time to earn extra income can help bridge the gap years—the period between when you retire and when you start taking guaranteed income sources like Social Security or pension income. Those gap years can be stressful if you have no income coming in and are relying entirely on your portfolio, especially during times of market volatility.

The extra income allows you to delay portfolio withdrawals or reduce them, maximizing your Social Security benefits and allowing your tax-deferred and tax-free savings to continue growing.

Strategy 3: Review Your Spending Assumptions and Retirement Budget

Many people assume they’ll need their current spending level, adjusted for inflation, throughout their entire retirement. But retirement spending typically occurs in three distinct phases:

  1. The Go-Go Years: When you’re active and traveling
  2. The Slow-Go Years: When you start to slow down
  3. The No-Go Years: When mobility becomes more limited

In the go-go years, your spending may even go up compared to your working years.  After all, every day is Saturday. But these years probably won’t last forever. Therefore, it likely doesn’t make sense to assume that level of spending forever.

There is an argument that healthcare costs might be lower at the beginning of retirement, while discretionary expenses are higher. Then, over time, discretionary spending decreases while healthcare costs rise, particularly for long-term care. If you have unexpected healthcare costs later in retirement, you want to be prepared to maintain your independence and dignity without relying on family members.

This is where long-term care insurance can be valuable. It eliminates the potential risk of needing to spend down your portfolio for care, which could impact your spouse’s financial security, especially considering women typically outlive men.

Studies have shown that retirees lag inflation by about 1% a year over time. If general inflation is 2%, your experienced inflation might only be 1% because many of your expenses are fixed. Your mortgage might be paid off, or your property taxes might be homesteaded and not increase at the full rate of inflation.  The inflation assumption might be one of the most critical variables when you are mapping out your spending needs and the viability of retirement success.

Strategy 4: Finding the Right Asset Allocation for Retirement Investing

Adjusting your retirement investing approach as you age is crucial for balancing growth potential with risk management. One of the things you can control is your long-term asset allocation. The higher exposure you have to equities (stocks), the higher long-term rate of return you should expect, though it’s not guaranteed.

One of the biggest mistakes I see retirees make is getting too conservative too early in retirement. They reach 60 or 65 and think, “I’m done accumulating, now I’m transitioning to the distribution phase. I was 70% in the stock market, I’m going to go down to 20% or 25%.”

That’s a no-no, especially if you’re borderline in terms of being funded or not well-funded. The higher expected rate of return you have in your portfolio, the more likely you are to achieve your long-term goals.

However, there’s a fine line. If you go 100% in stocks and retire into a market downturn, that’s not good either, because you’ll have to sell stocks at the wrong time.

Bill Bengen’s 4% rule assumed an asset allocation of 50% equities (S&P 500) and 50% in government bonds (10-year Treasury). However, he suggested that as the minimum equity exposure, but actually leaned toward 75% in equities if you have the risk tolerance.

If you’re a bit behind for retirement, you don’t have the capacity to get ultra-conservative. Going too conservative brings other risks into play:

  • Interest rate risk
  • Inflation risk
  • Longevity risk.

Consider a bucketing strategy where you align your asset allocation with different accounts:

  • More conservative investments in your taxable accounts that you’ll tap first
  • Moderate risk in your tax-deferred accounts
  • More aggressive investments in your Roth accounts that you’ll access later

Strategy 5: Consider Relocating for Financial Benefits

Considering relocation could be a strategy to boost your chances of success. This retirement planning strategy can be particularly effective if you’re moving from a high-cost-of-living area to a lower-cost one.

For example, suppose you’re selling a house in New York worth $1.2 million and moving to Florida or Tennessee. In that case, you might be able to buy a comparable or better home for $700,000, leaving you with $400,000 to invest (after accounting for closing costs and taxes).

This cost-of-living arbitrage can significantly improve your retirement outlook. However, it’s essential to consider more than just the financial aspects:

  • Where are your adult children and grandkids?
  • Where is your circle of friends?
  • What about healthcare facilities and doctors?
  • Is the infrastructure (roads, schools, hospitals) adequate?

Before making a permanent move, consider renting for six months or a year to make sure the location is right for you.

Strategy 6: Utilize Home Equity

Don’t be afraid to use your home equity in retirement. I often see folks whose largest asset is their paid-off home, worth $750,000, $1 million, or more. They don’t want to sell it because they like it and want to age in place there.

However, if that home equity is added to their financial legacy upon passing, and it impacts their standard of living during retirement, they may have missed out on valuable experiences, opportunities to gift to their children, travel, or access to better healthcare.

One way to tap into home equity without selling is through a reverse mortgage, available once you turn 62. This gives you access to your home equity as an emergency fund, line of credit, or even income payments for life. It will reduce the equity you leave behind, but you can age in place and won’t have to pay back the loan during your lifetime.

Home equity can also be a great source for funding long-term care if you can’t buy insurance due to pre-existing conditions. Using home equity for this purpose can free up your retirement assets for lifestyle expenses rather than reserving them for potential care needs or financial legacy goals.

Additional Retirement Planning Strategies to Consider

Maximize Social Security Benefits

If you’re feeling a bit underfunded, maximizing your Social Security benefit can do wonders. Delaying until 70 (the latest retirement age) or at least until full retirement age gives you a higher baseline that adjusts with inflation long-term.

Consider Life Annuities

A life annuity that continues paying for as long as you live can provide peace of mind, especially if you’re concerned about market downturns affecting your portfolio.

Rethink Roth Conversions

Roth conversions may not be right for you if you’re behind on retirement savings. They require front-loading taxes early on, which could impact your breakeven long-term, especially with an underfunded plan. You can’t convert your way to a successful retirement.

Implement Tax-Efficient Withdrawal Planning

Which accounts you tap first matters. The traditional approach is taxable first, then tax-deferred, then tax-free. But you might consider a combination approach to maximize certain tax brackets, or even prioritize spending down tax-free assets if you plan to leave tax-deferred accounts to heirs in lower tax brackets or to charity.

Stress Test Your Plan

Use Monte Carlo simulations to test different scenarios, including bear markets at the beginning of retirement and different inflation rates. Be flexible and fluid with your plan, making adjustments as needed.

Consider using “guardrails,” where you start with a certain withdrawal rate and adjust spending accordingly if markets perform poorly or better than expected.

Financial Planning for Retirement: Getting Professional Help

Retirement planning requires a comprehensive approach that considers savings, investments, and potential lifestyle changes. With these six retirement planning strategies, you can improve your retirement outlook even if you’re feeling behind right now.

If you’re unsure whether you’re on track and don’t want to figure it all out yourself, consider working with a financial planner. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

6 Reasons to Take Advantage of a Roth Conversion

While I recently outlined reasons to steer clear of a Roth conversion, today I’m flipping the coin to explore when it can be a smart, strategic move for your financial future.

Why Consider a Roth Conversion During Market Downturns

A Roth conversion can be particularly beneficial during market downturns. When the market is down, you’re essentially exchanging a number of shares based on the dollar amount you want to convert from your tax-deferred account (whether it’s an IRA or a 401k) into a Roth.

You’ll have to pay taxes now in exchange for tax-free growth, which is the advantage Roth accounts offer. When markets are down, you can convert more shares with the same dollar amount.

For example, if you were looking to convert $50,000 worth of Vanguard’s Total Index (VTI) back in 2022 (the last bear market), you’d be able to convert an additional 25% worth of shares because the market was down roughly 25% that year. Just a thought, given we had some rough patches this April with the tariff concerns. We could continue to see more volatility in the months ahead.

While we can’t control market volatility, we can control smart tax planning. Let’s jump into the top six reasons you may consider a Roth Conversion in your financial planning strategy.

1. For Accumulators: Backdoor Roth IRA Strategy

The first reason is actually for people who are pre-retirement, or what I call “accumulators.” There are income thresholds for single and married filing jointly to directly contribute to a Roth IRA. If you fall into that category, the Roth conversion or backdoor Roth IRA strategy comes into play.

Essentially, you’ll make a non-deductible contribution into an IRA and then convert those assets into a Roth IRA. There are some tax traps you might fall into (the aggregation rule), so consult with your tax planner or financial planner before making this move. This strategy is available for IRAs, and sometimes, for 401ks as well. Contribution limits are much higher for 401ks than IRAs. If you have this option within a 401k, this could really boost your retirement savings.

2. Tax-Free Growth Long-Term

Reasons 2 through 6 are for individuals nearing retirement who have accumulated substantial savings in tax-deferred IRAs or 401ks.

The second reason is for long-term tax-free growth. If you believe tax rates probably aren’t going down and are more likely to go up or stay the same, then tax-free growth and compounding interest are much more powerful than tax-deferred growth. This could be for legislative reasons, or even simply projecting out your lifetime tax brackets. We know now that the One Big Beautiful Bill Act has made the current brackets permanent. Still, that doesn’t mean YOUR tax bracket might rise over time based on changes in your income or assets.

3. Eliminate or Reduce Required Minimum Distributions

A Roth conversion can eliminate or reduce your required minimum distributions. Required Minimum Distributions (RMDs) are mandatory withdrawals from traditional retirement accounts (IRAs, 401ks, 403bs, TSPs, 457bs, etc.) that the IRS requires once you reach a certain age. The beginning age is currently 73 if you were born before 1960, or 75 if you were born in 1960 or later. RMDs could potentially push your income into higher tax brackets later in retirement when spending actually might go down. Furthermore, if you don’t need all that income, it forces you to realize it anyway to avoid the 25% penalty for a missed RMD.

4. Save Money on Medicare Premiums

Many people don’t realize that when you sign up for Medicare, you might find yourself paying MORE for Medicare Part B and D. Part A is free, and everyone has the same base premium for B and D. However, the more money you make in retirement, the chances of triggering an “IRMAA” surcharge goes up.

IRMAA stands for Income-Related Monthly Adjustment Amount. There are 5 different premium tiers, and each tier increases your IRMAA surcharge. You can also look at it like an excise tax. The more you’ve saved in tax-deferred vehicles (401ks and IRAs), the higher those RMDs might be. More income from RMDs means your Medicare premiums may go up.

5. Reduce the “Surviving Spouse’s Tax Penalty”

The likelihood that a married couple passes away in the same year is very low. Most of the time, women outlive men, or one spouse outlives the other by many years. This is especially relevant if there is a significant age gap between spouses.

Filing jointly is much more tax-advantaged for most people. The surviving spouse will have to switch to filing single, typically the year following the initial spouse’s passing. This could result in pushing the surviving spouse into a much higher tax bracket than when they could file jointly.

Taking this into consideration to ensure you’re not placing your surviving spouse in an unfair or unfavorable tax situation upon your passing is a compelling reason to convert assets from traditional to Roth.

6. Address Changes from the SECURE Act

With the SECURE Act going into effect at the end of 2019, we’re seeing the largest acceleration of taxes on retirement assets that we’ve ever experienced. Essentially, the stretch IRA is eliminated for most non-spousal beneficiaries. With the stretch IRA, beneficiaries could “stretch” their IRA withdrawals over THEIR life expectancy. However, the SECURE Act now requires most beneficiaries to liquidate the entire retirement account by the end of the 10th year. This could result in pushing your heirs into an unfavorable tax bracket, especially if they are successful in their own right. We hear all the time that our clients’ children are making more than they ever made! Couple this with large IRAs or 401ks as an inheritance in their peak earning years, and you can see the potential tax trap this brings about. We call it “The Death Tax Trap of 401ks.”

This acceleration of taxes is a big reason to convert from tax-deferred accounts to tax-free accounts. When Roth accounts pass to the next generation, the beneficiaries can enjoy tax-free distributions of the assets instead of tax-deferred distributions.

Understanding the Roth IRA Conversion Process

The concept of a Roth Conversion is essentially to pay the tax now as opposed to deferring those taxes in an IRA or 401k. If you follow the appropriate 5-year rules, everything that grows and compounds in that account, along with the withdrawals, should be tax-free in retirement.

Compare that to a traditional IRA or traditional 401k. These plans give you a tax deduction upfront, but all of that compounding interest and distributions in the back end are taxed as ordinary income in retirement.

Many of my clients over 55 have accumulated the majority of their retirement assets in tax-deferred vehicles, such as 401(k)s and/or IRAs. They may be concerned about the future direction of taxes, particularly given the funding levels of Medicare, Medicaid, and Social Security.

The general concept is: does it make sense to pay taxes now at a potentially lower rate and enjoy tax-free compounding as opposed to tax-deferred compounding going forward?

The Tax Trap of Traditional 401(k)s and IRAs

The impact of Required Minimum Distributions are oftentimes one of the biggest tax traps of 401ks and IRAs. Because our clients were diligent savers during their working years, they accumulated substantial assets in 401(k) plans and IRAs. When they turn 73 or 75, they’re forced to take out a certain percentage of those retirement accounts each year.

As your life expectancy shortens, the amount you’re required to take out increases. You start out at a little under 4%, and by the time you get to 90, you’ll be taking out north of 8% of your retirement account, whether you need it or not.

Think about what that can do to your taxable income, Medicare premiums, and ultimately, how those assets are passed on to the next generation. This tax trap is what we’re trying to solve well before clients hit that magic age.

Planning for Longevity in Retirement

More and more people are living longer, often into their 90s. The life expectancy of a 62-year-old female includes a 30% chance of living until 96. When planning with clients over 55 or 60, we may be looking at a retirement of 30 years or more, even longer than their working years.

You must consider this in light of the high inflation we have experienced these past few years. The cost of goods going up over that retirement period on a potentially fixed income is worrisome for many clients. That’s what we try to plan for and mitigate inflation risk coupled with longevity risk.

The Retirement Red Zone

I call the period ten years before you retire and the ten years after you retire the “Retirement Red Zone.” Decisions are magnified, and mistakes are magnified if you make the wrong move.

From an investment perspective, that’s important, especially during volatile times. Certainly, from a tax perspective, which also contributes to the long-term rate of return on your portfolio. This is something I aim to help my clients with as they prepare.

Strategic Planning for Retirement Success

While nobody can predict the future of taxes, you can take the known variables and project out your estimated lifetime tax rates. You will find that throughout retirement, there could be some opportunistic times when your income goes way down. If you’re making strategic moves during that time frame, such as Roth conversions, that planning can help position your retirement assets for better long-term growth and tax efficiency.

Remember, the planning doesn’t stop after retirement, it just changes. Whether you are on the brink of retirement or you’ve been retired for several years, having good guidance at every stage of the process is crucial for achieving financial peace and security in retirement.

Take a deeper dive into this topic by listening to Episode 10 of The Planning for Retirement Podcast. This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

7 Reasons Not to Do a Roth Conversion

I’ve never met anyone who wants to overpay the IRS. As a result, one of the number one topics we discuss with clients is how to reduce their lifetime tax bill. More specifically, whether or not they should consider a Roth Conversion with some of their IRA dollars.

Before we talk about the seven reasons that might cause you to delay, reduce, or reconsider doing a Roth conversion, let’s look at some big news brewing in Washington related to taxes on Social Security.

Social Security has a complicated formula to determine how much of your benefit will be included in your taxable income. On the low end, your entire benefit could be tax-free (0% included in taxable income). On the high end, up to 85% of your Social Security benefit could be taxable.

Senior Citizens Tax Elimination Act

Congressman Thomas Massey from Kentucky, along with 29 Republican co-sponsors, has introduced the Senior Citizens Tax Elimination Act. To provide some context, prior to 1986, Social Security benefits weren’t taxable at all. In 1986, Social Security implemented revisions and created the provisional income formula that determines how much of your benefit is included in taxable income.

Massey’s bill would essentially repeal the inclusion of Social Security benefits in taxable income altogether. This would also include tier one railroad benefits (pensions from working at the railroad). The bill was first introduced last year, but now it’s legitimate. It’s in the House and seems to have a decent chance of passing.

However, there are costs associated with implementing this bill. According to the Committee for Responsible Government, this is estimated to cost taxpayers about $1.8 trillion over the next decade. When we couple this with Social Security’s projected insolvency date of around 2033-2034, it raises questions about funding.

Currently, 80% of Social Security benefits are funded by payroll taxes from current workers. The Social Security trust fund supplements the remaining 20%. If benefits become tax-free, this could accelerate the insolvency date.

So, how will they pay for this bill? My crystal ball says taxes will increase in some way to fund the deficits projected for Social Security and Medicare.

Why is this relevant to our Roth conversion discussion? Because, while we know what taxes look like today, it’s virtually impossible to be 100% certain about future tax rates.

What is a Roth Conversion?

A Roth conversion involves moving or converting funds from a tax-deferred vehicle (like a traditional IRA, 401(k), 403(b), or TSP plan) into a tax-free vehicle. In exchange for doing this, you elect to pay the taxes now.

Why would you do this? At one point, you believed deferring taxes was the way to go, or maybe you didn’t have access to a Roth account. This is pretty common—15-20 years ago, many employers didn’t offer Roth 401(k) plans. But now you have the ability to convert some of those assets to Roth.

The benefit of a Roth account is tax-free growth going forward, as opposed to tax-deferred growth. But there are situations where converting might not be the best strategy.

1. You’re in a Higher Tax Bracket Today Than You Will Be in the Future

The first reason to reconsider a Roth conversion is if you’re currently in a higher tax bracket than you expect to be in the future. There are several scenarios where this might happen:

When you retire, your W-2 income or self-employment income disappears. Your only income might be capital gain distributions, dividends, interest, a small pension, or IRA distributions. If your tax bracket will drop substantially in retirement, it might make sense to wait until you enter what we call the “Roth conversion window.” This window is after retirement, but before you start taking Required Minimum Distributions (RMDs) and/or Social Security.

Your income might be temporarily high due to things like

  • Selling a business, stock, or rental property
  • Receiving a large bonus
  • Inheriting money

Doing a Roth conversion during these high-income years could push you into an unnecessarily higher tax bracket.

You might believe taxes will decrease in the future due to legislative changes, making it beneficial to wait for potential tax cuts before converting.

In short, if you expect your income bracket to drop at some point, it might be worth evaluating conversions at that time instead of now.

2. You’re Leaving a High-Income Tax State for a Low or No-Income Tax State

According to the Tax Foundation, state income taxes significantly influence net migration in the U.S. The top third of states with positive net migration have an average state income tax of about 3.5%. The bottom third average nearly double that at 6.7%.

I don’t believe you should move to a state in retirement solely because of taxes. However, if you’re planning to move from a high-tax state like New Jersey, New York, or California to a low or no-income tax state, you might consider waiting to do Roth conversions until after your move.

You could potentially benefit from both a lower federal bracket at retirement and little to no state income tax, maximizing your tax savings on the conversion.

It will be interesting to see how migration patterns evolve as companies bring employees back to in-person work. For retirees with the flexibility to move anywhere, taxes will likely remain an important consideration.

3. Your Heirs Are in Lower Tax Brackets

The SECURE Act, passed at the end of 2019, eliminated the “stretch IRA” for most beneficiaries. Previously, individuals who inherited an IRA could stretch distributions over their life expectancy. Now, most non-spouse beneficiaries must liquidate the account within 10 years.

This applies to both traditional IRAs and Roth accounts. The key difference is that Roth account distributions during those 10 years are tax-free to beneficiaries, while traditional IRA distributions are fully taxable.

If your beneficiaries are in a very low tax bracket, while you are in a higher tax bracket, there could be an argument for not converting. For example, if you’re in the 24% or 32% bracket due to Social Security, a pension, and investment income, while your children are in the 10% or 12% bracket, it might make more sense to leave those assets to your heirs and let them pay taxes at their lower rate.

The challenge with this approach is that it requires knowing exactly when you’ll pass away and what tax bracket your children will be in at that time. Your 25-year-old child who’s currently in graduate school with no income might eventually have high earning potential or start a successful business, putting them in a higher tax bracket than you.

Additionally, even if your beneficiaries are in a relatively low tax bracket, inheriting a large IRA could push them into a higher bracket during the 10-year distribution period. For example, if your IRA is worth $2 million, your beneficiaries would need to distribute about $200,000 annually over 10 years, potentially pushing them into a much higher tax bracket regardless of their current income.

You should also consider the distribution of your assets between taxable, tax-deferred, and tax-free accounts when making this decision.

4. Hidden Taxes Could Reduce the Benefit of Converting

Any Roth conversion will increase your taxable income in the year you do the conversion, even though it doesn’t put cash in your bank account. This can trigger various “hidden taxes” based on calculations like modified adjusted gross income (MAGI), taxable income, or provisional income.

Here are some examples:

IRMAA Surcharge: The Income-Related Monthly Adjustment Amount applies once you’re Medicare eligible. While Medicare Part A is free, Part B has a premium (about $185 for 2025). Part D depends on your chosen drug plan. If your income exceeds certain thresholds, you’ll pay additional surcharges for both Part B and Part D. These surcharges can range from $1,000 to over $6,000 per year per person.

ACA Premium Tax Credits: If you retire before 65 and use the Affordable Care Act for health insurance, you might be eligible for premium tax credits based on your modified adjusted gross income. Roth conversions could reduce these credits.

Net Investment Income Tax: If your MAGI exceeds $250,000 (married filing jointly) or $200,000 (single), there’s an additional 3.8% tax on investment income like dividends, interest, and rental income.

Capital Gains Taxes: If you’re married filing jointly and your taxable income is below $96,700 for 2025, you don’t pay any tax on long-term capital gains. A Roth conversion could push you above this threshold.

Social Security Taxation: As mentioned earlier, between 0% and 85% of your Social Security benefits could be taxable depending on your provisional income. Roth conversions can increase this percentage.

While these hidden taxes aren’t necessarily reasons to avoid Roth conversions entirely, they should factor into your decision about timing and amount.

5. You’re Planning to Donate to Charity During Your Lifetime or at Death

Traditional IRAs are some of the best accounts to donate to charity. If you convert all your tax-deferred assets to Roth, you lose this potential tax benefit.

One powerful strategy is the Qualified Charitable Distribution (QCD). Once you turn 70½, you can donate up to $107,000 (in 2025) directly from your IRA to charity without recognizing an taxable income. What makes this even more powerful is that once you begin taking Required Minimum Distributions (RMDs), you can reduce your RMD dollar-for-dollar up to that cap.

For example, if your RMD is $50,000 and you typically donate $30,000 to charity, you could do a $30,000 QCD directly from your IRA. This would reduce your RMD to $20,000, essentially making that $30,000 completely tax-exempt—even better than a tax deduction.

Similarly, if you’re planning to leave money to charity at death, your traditional IRA is a great asset to use. While your non-spousal beneficiaries (typically children or nieces/nephews) will have to pay taxes as they withdraw from the inherited IRA over the 10-year period, charities don’t pay any taxes on these distributions.

This doesn’t mean you shouldn’t convert at all, but you might consider not converting as much or as aggressively if charitable giving is part of your plan.

6. You’re Planning to Self-Fund for Long-Term Care Costs

Long-term care is one of the most significant risks retirees face today. The uncertainty lies in whether you’ll need care, and if so, for how long—six months or ten years? The costs can be substantial, often exceeding six figures annually.

Some people buy long-term care insurance, while others plan to use their own assets. If you’re in the latter group, there’s an interesting tax angle to consider. While IRA distributions are taxable, there’s a deduction if your medical costs exceed 7.5% of your adjusted gross income. These expenses can be added to your itemized deductions.

If you need long-term care later in life, it’s almost certain your expenses will exceed that 7.5% threshold, given the high costs involved. If you have an IRA you can tap into to pay for care, you might be able to deduct some of those distributions because of the medical expense deduction.

While this deduction may not offset the entire tax on the distribution, it can be significant enough to argue against converting all of your IRA to Roth.

7. You Don’t Have the Cash to Pay the Taxes

The traditional approach to paying for Roth conversion taxes is to use cash on hand from a savings or checking account, or to increase withholding from sources like Social Security or a pension to offset the additional taxes.

If these aren’t options—if you don’t have the cash or need your income from other sources—you may have to use funds from your IRA to pay the tax. If you’re younger than 59½, this isn’t advisable because you’ll face a 10% early withdrawal penalty.

Even if you’re over 59½, using money from your IRA to pay the taxes leaves less money invested that could otherwise grow tax-deferred. This may not be ideal depending on your time horizon and the breakeven point of the Roth conversion.

Your plan should strongly favor Roth conversions for it to make sense to pay the tax out of the IRA. While there are cases where this works (I have a client for whom we’re doing exactly this), if you don’t have the cash and the case for Roth conversion isn’t compelling, you might want to pause or avoid the conversion altogether.

Final Thoughts on Roth Conversion Decisions

Understanding when a Roth conversion makes sense requires careful analysis of your current situation, future expectations, and overall financial goals. While Roth conversions can be powerful tools for retirement planning, they aren’t right for everyone in every situation.

Remember that tax laws and personal circumstances change over time, so regularly reviewing your retirement and tax planning strategy is essential for long-term success.

If you’re approaching retirement and wondering if you should do a Roth Conversion, check out Episode 66 of The Planning for Retirement Podcast. Consider working with a financial advisor who specializes in retirement income planning. They can help you analyze your specific situation and develop a claiming strategy that aligns with your overall financial goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.




9 Reasons to Consider Delaying Social Security Benefits

You’ve probably heard financial experts advising people to claim Social Security as early as possible. They say things like:

  • “You don’t know how long you’ll live.”
  • “Take it now while you’re young and healthy.”
  • “Social Security might go bankrupt.”

But what if I told you that for high-net-worth retirees, claiming early could cost you several hundred thousand dollars in lost income and negatively impact your investment portfolio over time?

In this article, we’re going to dive into nine compelling reasons why you might consider delaying your Social Security benefits as long as possible. This advice is particularly relevant for individuals over 50 who have accumulated at least a million dollars in retirement savings.

The Current Economic Context

Before we dive into our main topic, it’s important to note some significant economic developments that could impact retirement planning. As of July 2025, all three major credit rating agencies have downgraded US credit from AAA to AA. This downgrade stems from rising national debt (currently at $36 trillion), large annual deficits, and higher borrowing costs for the government.

For retirees, this has several implications:

  1. Bond yields have increased, offering higher interest income on new issues
  2. Existing bonds may have decreased in value
  3. There’s increased volatility in fixed-income investments

These factors make your Social Security claiming strategy even more critical as part of your overall retirement plan.

Social Security Basics: What You Need to Know

Before discussing claiming strategies, let’s review some Social Security fundamentals:

  • Eligibility: You need 40 credits (typically achieved by working for 10 years) to qualify
  • Primary Insurance Amount (PIA): The benefit you’ll receive at full retirement age
  • Full Retirement Age: For most people born after 1960, this is age 67
  • Early Claiming: You can claim as early as 62, but with a reduction of up to 35% from your PIA
  • Delayed Claiming: For each year you delay beyond full retirement age (up to age 70), your benefit increases by 8%

In 2025, the average monthly Social Security benefit is about $1,840 across all recipients, with retirees receiving slightly more at around $1,900 per month. However, if you’ve had above-average earnings throughout your career, your benefits could be significantly higher.

The maximum possible monthly benefit at full retirement age is over $4,000. If claimed early at 62, the maximum is about $2,800, while delaying until 70 could provide up to $5,100 per month. For a married couple with two high earners, this could mean a combined monthly benefit of $8,000 to $10,000, a substantial fixed income stream.

Nine Reasons to Consider Delaying Social Security

1. You or Your Spouse Are Still Working

If you or your spouse continues working, whether part-time or full-time, this income might cover your basic necessities. You can supplement this with portfolio withdrawals if needed.

Additionally, if you claim Social Security while still working before reaching full retirement age, you’ll be subject to the retirement earnings test. This means Social Security will reduce your benefits if your wages exceed certain thresholds. While these reductions aren’t permanent (you’ll receive adjustments later), delaying benefits while working can simplify your financial situation.

2. Higher Guaranteed Monthly Benefit

This is perhaps the most obvious reason to delay. By waiting until age 70 instead of claiming at 62, you can increase your monthly benefit by approximately 77% (avoiding the 35% reduction at 62 and gaining 24% from delayed retirement credits between 67 and 70).

Example

If your primary benefit amount at 67 is $3,000, claiming it at 62 would reduce it to approximately $1,950, while waiting until 70 would increase it to approximately $3,720 per month. That’s a difference of $1,770 per month or $21,240 per year!

Of course, by delaying, you will be forgoing benefits for several years. The break-even point—where the cumulative benefits from delaying surpass what you would have received by claiming earlier—typically occurs around age 83. If you live beyond this age, delaying will have provided greater lifetime benefits.

3. Longevity Insurance

Social Security functions similarly to an annuity, providing guaranteed income for life. This “longevity insurance” becomes increasingly valuable the longer you live.

According to Social Security’s actuarial tables, a 60-year-old male today has a life expectancy of 80.4 years, while a female has a life expectancy of 83.5 years. However, many high-net-worth individuals have access to better healthcare and tend to live longer than these averages.

By delaying Social Security, you’re essentially purchasing a larger “annuity” that increases with inflation each year through cost-of-living adjustments (COLAs). Unlike private annuities, which may not include inflation protection, Social Security benefits are adjusted annually to keep pace with the Consumer Price Index.

4. Spousal and Survivor Benefits

For married couples, delaying benefits can significantly impact the financial security of both spouses.

While spousal benefits (up to 50% of the primary earner’s benefit at full retirement age) cannot be increased by delaying beyond full retirement age, survivor benefits can be. If the higher-earning spouse delays claiming until 70 and then passes away, the surviving spouse can step up to that higher benefit amount.

Example

Let’s say that Jack’s benefit at full retirement age is $4,000 per month, and Jill’s is $2,500. Jack decides to delay receiving benefits until age 70, which increases his benefit to $5,000 per month. When Jack passes away, Jill will receive $5,000 instead of $4,000. This provides significant additional income protection for the surviving spouse.

5. Tax Efficiency

Social Security benefits may be partially taxable depending on your “combined income” (adjusted gross income + tax-exempt income + half of your Social Security benefits):

For single filers:

  • Below $25,000: 0% taxable
  • $25,000-$34,000: Up to 50% taxable
  • Above $34,000: Up to 85% taxable

For married filing jointly:

  • Below $32,000: 0% taxable
  • $32,000-$44,000: Up to 50% taxable
  • Above $44,000: Up to 85% taxable

By delaying Social Security and strategically managing your income during the “Roth conversion window” (the period between retirement and Required Minimum Distribution age), you might be able to convert traditional IRA assets to Roth while keeping your tax bracket lower. Then, when you start Social Security at 70, a smaller portion (or potentially none) of your benefits might be subject to taxation.

6. Maximizing Legacy

While claiming early and investing those benefits might seem like a good strategy for maximizing your legacy, delaying can actually be more effective if you live a long life.

Yes, delaying Social Security means higher portfolio withdrawals in the short term. However, once you start receiving the higher benefit amount, your lifetime withdrawal rate decreases. Over a 15-25 year retirement, this can result in greater portfolio preservation and a larger inheritance for your heirs.

In one case study, a client with a $1 million portfolio who delayed claiming Social Security saw their portfolio initially dip but then recover significantly. By year 22 (around age 84), their portfolio value exceeded what it would have been had they claimed early, ultimately leaving a larger legacy.

7. Peace of Mind

The simple psychological benefit of having a higher guaranteed income stream shouldn’t be underestimated. Many retirees sleep better knowing they have a substantial, inflation-protected income source that isn’t dependent on market performance.

This peace of mind factor is why many people work longer than financially necessary—they want to maximize their guaranteed income in retirement.

8. Health Savings Account (HSA) Eligibility

This is a more technical consideration, but essential for those with HSAs. Once you enroll in Medicare at 65, you can no longer contribute to an HSA, even if you’re still working and covered by a qualified employer plan.

When you begin collecting Social Security after 65, you’re automatically enrolled in Medicare. If you plan to work past 65 and want to continue contributing to an HSA, delaying Social Security is necessary.

9. Flexibility

Deciding to delay Social Security doesn’t lock you in permanently. If you initially plan to delay until 70 but retire into a market downturn, you can start benefits earlier than planned to reduce pressure on your investment portfolio.

This flexibility allows you to adjust your strategy according to changing market conditions, health developments, or other life circumstances.

Real-World Impact: A Case Study

Let’s look at a real example of how different claiming strategies affect lifetime benefits. For a couple we’ll call Jack and Jill, we analyzed three scenarios:

  • Both claiming at 62
  • Both claiming at full retirement age (67)
  • Both claiming at 70

Assuming Jack lives to 85 and Jill to 90, with a 2% annual cost-of-living adjustment:

  • Claiming at 70: $2.3 million in lifetime benefits
  • Claiming at 62: $1.8 million in lifetime benefits

That’s a $500,000 difference in favor of delaying!

Making Your Decision

Every Social Security claiming decision is unique. There’s no one-size-fits-all approach, and hundreds of different claiming scenarios exist based on your specific circumstances.

Don’t let emotions or pessimistic assumptions about the system drive your decision. While concerns about Social Security’s future are valid, making claiming decisions based on fear rather than analysis could cost you hundreds of thousands of dollars.

Your Social Security strategy should be coordinated with other aspects of your retirement plan, including:

  • Your investment portfolio strategy
  • Tax planning
  • Healthcare costs
  • Spousal considerations
  • Legacy goals

For high-net-worth individuals, the decision is particularly nuanced. While you may not “need” Social Security to survive, optimizing this benefit can significantly enhance your retirement security and legacy planning.

Next Steps

If you’re approaching retirement and wondering if you should delay Social Security, check out Episode 79 of The Planning for Retirement Podcast.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

9 Reasons to Consider Claiming Social Security Benefits Early

The conventional wisdom about Social Security has long been clear: delay claiming as long as possible to maximize your lifetime benefits. Financial calculators, planning tools, and many advisors default to this recommendation. But what if this one-size-fits-all approach isn’t actually the best strategy for you?

As a financial planner, I look beyond the standard advice to consider each client’s unique circumstances. While delaying until age 70 maximizes the monthly benefit amount, there are numerous scenarios where claiming earlier might better serve your financial and personal goals.

In this article, we’ll explore nine compelling reasons why you might want to claim Social Security benefits earlier than conventional wisdom suggests. Let’s start with some basics.

Understanding the 2025 Social Security Landscape

Before diving into claiming strategies, let’s review the current Social Security environment in 2025:

  • A 2.5% Cost-of-Living Adjustment (COLA) has been implemented
  • The average monthly retirement benefit has increased to $1,976
  • The earnings test threshold has been raised to $23,400
  • The worker-to-beneficiary ratio stands at 2.7 workers per beneficiary
  • Trust fund depletion is projected for 2033 without legislative changes

With these updates in mind, let’s examine when claiming Social Security early might make sense for you.

1. Limited Life Expectancy

Social security claiming age considerations should include health status and family longevity.

The default assumption in most financial planning tools is longevity. These tools often project to age 90, 95, or beyond. However, if your life expectancy is shorter due to health conditions or family history, claiming earlier often makes mathematical sense.

The breakeven point between claiming at 70 versus claiming earlier typically falls between ages 78 and 82. If your life expectancy doesn’t suggest you will reach that age, you may collect more total benefits by claiming earlier. This isn’t about being pessimistic—it’s about being realistic and maximizing the total benefit based on individual circumstances.

2. Immediate Cash Flow Needs

Deciding when to claim social security benefits should factor in immediate cash flow requirements. Simply put, some people need the income now. While creating a comprehensive retirement income plan is ideal, Social Security can provide a reliable income stream when you lack other liquid assets or don’t want to draw down your investment portfolios too quickly.

Social Security essentially functions as an annuity, providing a guaranteed income. If you are concerned about market volatility or need predictable income, starting benefits early can create financial stability and peace of mind.

3. The Start-Stop Strategy Advantage

Many clients are unaware that they can claim Social Security benefits early and then suspend them when they reach full retirement age (currently between 66 and 67). This “start-stop” approach allows you to:

  • Begin receiving benefits during an unexpected early retirement
  • Test the waters of retirement without fully committing
  • Suspend benefits if you return to work
  • Earn delayed retirement credits of 8% annually from suspension until age 70

This strategy provides flexibility if your work and retirement plans are in flux, allowing you to adapt your claiming strategy as your situation evolves.

4. Legacy Planning Considerations

If leaving a financial legacy is a priority for you, the analysis must go beyond just cumulative Social Security benefits. Many online calculators only consider the breakeven point of lifetime Social Security payments, missing a crucial factor: portfolio preservation.

Consider this scenario:

A client who delays Social Security until 70 might need to withdraw 8-9% annually from their portfolio during those delay years. Conversely, a client who claims at 65 might only need to withdraw 4-5% annually. The lower withdrawal rate gives the portfolio a better chance to grow, potentially preserving more wealth for heirs.

The proper analysis should examine not just when Social Security benefits break even, but when the investment portfolio recovers from the higher early withdrawals. In some cases, this portfolio preservation aspect often tilts the scales in favor of earlier claiming. 

5. Market Volatility Protection

Market conditions significantly influence the decision of when to claim Social Security benefits. Claiming early may provide stability during market downturns.

Imagine retiring during a bear market, such as 2008, 2020, or 2022. Your portfolio has already taken a hit, and now you need to start withdrawals.

If you’re delaying Social Security, you might need to withdraw 8% or more from a diminished portfolio, potentially causing permanent damage to your retirement sustainability. Claiming Social Security during market volatility can reduce pressure on the investment portfolio, allowing it time to recover.

This strategy can be particularly effective when combined with the start-stop approach mentioned earlier. Clients can claim benefits during market downturns, then suspend when markets recover and they reach full retirement age.

6. No Spousal Benefit Concerns

For married couples, it’s generally advisable to delay the higher earner’s benefit, especially if longevity is expected. This maximizes the survivor benefit, as the surviving spouse will receive the higher of the two benefits upon the death of their spouse.

However, if you have the lower benefit or are single, this consideration doesn’t apply. In these cases, claiming earlier might be more sensible, especially if other factors, such as portfolio preservation or immediate income needs, come into play.

7. Hedging Against Future Benefit Changes

Some people are worried about potential future cuts to Social Security benefits. The Social Security trust fund is projected to be depleted by 2034. At this point, only about 80% of projected benefits would be covered by ongoing payroll taxes if no changes are made.

Over 50% of retirees depend on Social Security for a significant portion of their income. This means that it’s highly unlikely the Social Security benefits program will be eliminated entirely. Likely solutions to the funding gap include increasing the Social Security wage base cap (currently around $176,000) or slightly raising the payroll tax rate.

Still, some people prefer to “get theirs” now, while benefit payouts are certain. This is more of an emotional reaction than a mathematical decision. However, if you are concerned about potential means testing or benefit reductions, claiming earlier can be a reasonable hedge.

8. Self-Investment Opportunity

Some financially savvy people prefer to claim Social Security benefits early and invest those payments themselves. This approach can make sense if you:

  • Have aggressive investment strategies
  • Are comfortable with market volatility
  • Have specific investment opportunities with potential for higher returns
  • Value liquidity and control over their assets

By claiming early and investing the proceeds, you build assets on your own balance sheet rather than waiting for potentially higher future payments. These self-directed investments can be passed on to heirs, unlike Social Security benefits, which generally terminate upon the death of the surviving spouse.

9. Unlocking Benefits for Dependents or Spouses

An often-overlooked reason to claim Social Security benefits earlier involves dependent or spousal benefits. Your spouse cannot claim spousal benefits until you claim your own benefit. This is particularly important if:

  • Your spouse has limited or no Social Security credits of their own
  • You have dependent children under 18 (or still in high school)
  • Your spouse is caring for dependent children

Dependent children can receive up to 50% of the primary amount (the benefit at full retirement age), but only once the primary earner claims their benefit. For clients with younger children or those in second marriages later in life, this consideration can be particularly significant.

Strategic Considerations for Couples

Social security break-even analysis should include portfolio effects, not just lifetime benefit totals. For married couples, coordinated claiming strategies are essential. Here are a few key approaches to consider:

  1. Lower-earner claims early, higher-earner delays: This provides immediate income while maximizing the eventual survivor benefit.
  2. Survivor benefit optimization: If one spouse passes away, the survivor can receive the higher of the two benefits. Delaying the higher earner’s benefit increases the survivor’s benefit.
  3. Spousal benefit coordination: A spouse can receive up to 50% of their partner’s primary insurance amount at full retirement age (less if claimed early).

Remember that the “file and suspend” and “restricted application” strategies were largely eliminated by the Bipartisan Budget Act of 2015, but coordinated claiming strategies remain valuable for married couples.

Key Factors:

Developing effective social security claiming strategies requires understanding your unique situation. When deciding whether to claim Social Security benefits early, consider these essential elements:

  1. Health status and family longevity: Be realistic about life expectancy based on health conditions and family history.
  2. Financial need: Assess immediate income requirements versus long-term maximization.
  3. Employment status: Consider whether continued work is likely or possible.
  4. Marital status: Evaluate spousal and survivor benefit implications.
  5. Other retirement resources: Analyze how portfolio withdrawals interact with Social Security timing.
  6. Market conditions: Factor in current and expected market performance.
  7. Legacy goals: Consider the impact on wealth transfer objectives.
  8. Risk tolerance: Assess comfort with market volatility versus guaranteed income.

The most important advice? Don’t analyze Social Security claiming in isolation. It must be evaluated within the context of a comprehensive retirement income plan that considers all aspects of your financial situation.

Personalized Strategies Win

The “right” Social Security claiming strategy isn’t universal—it’s personal. While delaying benefits works mathematically for those with longevity, many real-world factors can make earlier claiming the optimal choice for you. For a deeper dive into claiming Social Security benefits early, check out Episode 68 of The Planning for Retirement Podcast.

Are you approaching retirement and feeling overwhelmed by the decision of when to claim Social Security? You don’t have to navigate the Social Security landscape alone.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

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